Abstract

Policy-makers in Germany have implemented, from the early 1990s to the mid 2000s, an impressive set of reforms designed to provide greater legal protection to minority shareholders. These reforms are linked with circumscribed changes: medium and long-term UK/US-based institutional investors have become major shareholders of large German firms; the incursions of short-term institutional investors, in contrast, have been more limited. This outcome highlights the interaction between firm-level institutional arrangements of German companies and the characteristics of different categories of shareholder value oriented funds. Institutional arrangements act as constraints that reduce the range of the strategic options of German firms. However, institutions are not specific enough to translate into predictions about the investment behaviour of different categories of investors who are themselves governed by internally defined rules that affect how they operate within an institutional framework.